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Restrictions on Commercial Advertising Speech in Vermont Data Mining Law Violate First Amendment

Alerts / July 6, 2011

On June 23, 2011, the U.S. Supreme Court, in Sorrell v. IMS, held that a Vermont statute restricting the sale, disclosure and use of pharmacy records containing the prescribing practices of doctors for marketing purposes by pharmaceutical companies violated the First Amendment’s protection of commercial advertising speech. From a commercial advertising perspective, the decision sends a message that a government cannot restrict truthful, non-misleading advertising to prevent consumers from making a decision that the government disagrees with. From a privacy standpoint, because the Court treated the creation or dissemination of data as speech, it will be difficult to enact laws restricting the disclosure of personal information without violating the First Amendment.

The Vermont law was aimed at curtailing the use of “detailing” by pharmaceutical companies to promote their drugs to doctors. Data mining companies purchase prescriber-identifying information collected by pharmacies when they process prescriptions, which they aggregate and analyze (typically with patient data de-identified and encrypted) and then use to produce reports on the prescribing behavior of individual doctors. Pharmaceutical sales representatives use the reports to more effectively convince doctors to prescribe higher-profit brand-name drugs.

To combat detailing, the Vermont law: (1) prohibited pharmacies and health insurers from selling prescriber-identifying information or allowing it to be used for marketing without the prescriber’s consent; and (2) barred pharmaceutical manufacturers and marketers from using prescriber-identifying information for marketing without the prescriber’s consent. The restrictions were subject to a broad list of exceptions, including allowing such data to be used for research, patient education on treatment topics, law enforcement and other purposes provided by law.

Applying heightened scrutiny, the Court found that the Vermont law impermissibly enacted content- and speaker-based restrictions on the sale, disclosure and use of prescriber-identifying information. Because the law only restricted one type of speech (marketing) by one type of speaker (pharmaceutical companies), the law violated the First Amendment. The Court noted that there is a strong argument that prescriber-identifying information is speech for First Amendment purposes, not conduct. In so doing, the argument that information used to develop a commercial message was simply a commodity with no greater First Amendment protection than beef jerky was rejected. Rather, the Court stated that: “Facts, after all, are the beginning point for much of the speech that is essential to advance human knowledge and to conduct human affairs.” Although it recognized that technology has created “serious and unresolved issues with respect to personal privacy,” the Court stated that content-based discrimination cannot be used to advance the government’s opinion in the privacy debate.

Although it applied heightened scrutiny, the Court found that the law would still fail under a lesser standard because Vermont did not show that the law was designed to directly advance a government interest. Vermont did not argue that the law was designed to prevent false or misleading speech, and Vermont essentially conceded that the law did not advance confidentiality interests. If Vermont’s interest was truly the privacy of patient information, the Court stated that it could have done so by only allowing disclosure of prescriber-identifying information in a few narrow and well-justified circumstances, citing HIPAA as an example. The Court added that: “Privacy is a concept too integral to the person and a right too essential to freedom to allow its manipulation to support just those ideas the government prefers.”

Vermont and supporters of its law attempted to frame it as a law protecting the privacy of sensitive medical data, and critics of the decision have argued that the Supreme Court chose to protect corporate interests instead of individual privacy rights. But the law at issue in Sorrell v. IMS was not really designed to protect individual medical records—it was designed to promote the use of generic drugs to lessen Vermont’s healthcare costs. The privacy implication of this decision is the recognition of the collection and dissemination of data as commercial speech protected by the First Amendment. As the versions of Do Not Track legislation, designed to address the privacy concerns associated with behavioral advertising, and electronic health record laws are discussed at the federal and state levels, lawmakers will have to walk a tightrope to create a law that achieves the desired purpose without unduly restricting speech.

If a government attempts to follow the road map articulated by the Court of only allowing disclosure of certain information in a few narrow and well-justified circumstances, a government would risk stifling technology and innovation. Banning most or even all disclosures of personal information is not realistic because of the value associated with the data, especially “big data.” For example, in the healthcare industry, a research study released in May 2011 by McKinsey Global Institute predicted that in ten years there will be an opportunity to capture $300 billion annually in new value, “with two-thirds of that in the form of reductions to national health care expenditure.” In the public sector, the McKinsey study projected that use of geolocation data will create $100 billion in revenue to service providers over the next ten years and as much as $700 billion in annual value to customers.

If you have any questions about the information presented in this alert or how it may impact your business, please contact any member of our Privacy, Security and Social Media Team. We hope you find this information helpful. Stay current on important developments in data privacy law by following Baker Hostetler’s Data Privacy Monitor.